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Essential Economic Formulas: Spending Multiplier, GDP, CPI, and More

This guide details key economic formulas essential for understanding macroeconomic principles. Discover the spending multiplier (1/MPS and 1/(1-MPC)), the equations for Marginal Propensity to Consume (MPC) and Savings (MPS), and the GDP Deflator formula. Learn how to calculate Nominal and Real GDP, the tax multiplier, and the money multiplier, as well as the unemployment rate and Consumer Price Index (CPI). This overview is perfect for students and professionals looking to reinforce their knowledge of macroeconomic concepts.

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Essential Economic Formulas: Spending Multiplier, GDP, CPI, and More

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  1. Macro Midterm Review

  2. What are the formulas for the spending multiplier • 1/MPS • 1/1-MPC

  3. What is the equation for MPC • MPC = Change in consumption/change in income

  4. What is the formula for MPS • MPS = Change in savings/change in income

  5. What is the formula for the GDP Deflator? • GDP Deflator = current year prices x quantity of current year basket/base year prices x quantity of current year basket

  6. What are the formulas for Nominal and Real GDP? • Nominal = quantity of goods/services x price • Real = Nominal GDP/ Price index

  7. What is the formula for the tax multiplier? • Tax Multiplier = -MPC/MPS

  8. What is the formula for the money multiplier? • MM = 1/reserve ratio

  9. What is the formula to compute the maximum money a bank can loan out and the entire banking system? • Individual Bank = ER • Banking system = ER x money multiplier

  10. What is the formula for the unemployment rate? • Unemployment rate = # unemployed/ Labor Force

  11. What is the formula for the CPI? • CPI = Base year quantities x current year prices/ base year quantities x base year prices

  12. What are the determinants of GDP? • C + I + G + Xn

  13. What is the formula for the equation of exchange? • MV = PQ

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